Fundrise Review 2023: Passive Income via Real Estate

This Fundrise review was last updated 02/21/2023. 

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Fundrise is a Washington D.C.-based real estate crowdfunding company enabling non-accredited investors to invest in high-quality real estate from their computer or smartphone. Investors can earn nice yields via one of the most passive income streams I’ve come across. After four years of investing on the platform, this is my Fundrise review.

I invest on the Fundrise platform to add to my passive income portfolio. 

When investing with Fundrise, your money goes into medium-sized real estate investments, typically apartment complexes, commercial properties, construction loans, and acquisition loans.

Enabled by technology, the Fundrise platform gives ordinary investors access to investments once reserved for professionals.

More than 160,000 investors now invest their money with Fundrise. Get started with just $10. 

In this Fundrise review, I’ll go over real estate crowdfunding, the Fundrise platform (including screen shots and earnings from my personal account), and compare Fundrise to other similar platforms.

Full disclosure: I’ve invested more than $20,000 of my money into 14 Fundrise eREITs since the start of 2017. Jump to my return data (below). This is a testimonial in partnership with Fundrise. We earn a commission from partner links on RetireBeforeDad.com. All opinions are my own.

Real estate financing has changed forever and I’m optimistic about this long-term investment opportunity. I’m also a Fundrise affiliate.

Fundrise is the simplest, most hand-off way to invest in real estate.

Learn more at Fundrise

What is Real Estate Crowdfunding?

Fundrise is an innovator among the first to bring real estate crowdfunding to the mainstream. The founders saw inefficiencies in how real estate projects were financed. They also wanted an easy way for friends, family, and locals to invest in properties. But there wasn’t away to do so online.

In 2012, Fundrise successfully completed the first crowdfunded real estate purchase in the H Street Corridor of Washington D.C. raising $325,000 from 175 investors.

Around the same time, Congress passed the Jumpstart Our Business Startups Act (JOBS) of 2012. The JOBS Act set the foundation for equity crowdfunding. Equity crowdfunding is similar to more established crowdfunding on sites such as Kickstarter, but allows for the exchange of equity for early investments.

The JOBS Act has created more options for early-stage companies to raise money, including crowdfunding and mini-IPOs, also known as Reg A+ IPOs. Companies can raise up to $50,000,000 per fund via Regulation A of the JOBS Act.

Real estate crowdfunding was not the primary intent of the JOBS Act. However, it has seen the most growth. Since the passing of the JOBS Act, at least 100 real estate crowdfunding sites have emerged because the opportunity is so big. But the top tier companies do most of the volume. In addition to Fundrise, other significant platforms include Realty Mogul, Crowdstreet, and EquityMultiple.

I’m currently investing on two different platforms. Fundrise and EquityMultiple. Toward the end of this post, I compare them and suggest which one is right for you.

The potential for real estate crowdfunding is huge. These platforms are quickly taking share of the real estate project funding landscape. But crowdfunding is still in its infancy. Now, large commercial and residential real estate investments, once reserved for wealthy individuals and established companies, are available to ordinary investors.

Fundrise Review 2023

The Fundrise mission is far reaching but helps explain what they’re all about.

We’re reinventing the way people invest their money… Fundrise was born from the belief that everyone deserves a simpler, smarter, more reliable way to invest their money. Using technology, we are rebuilding the entire investment system from the ground up so individuals can efficiently access the best investments.

Innovation is at the core of Fundrise. Since it’s first funded property, it has grown significantly in users and products, many of which were the first of its kind.

From filing the original patent for real estate crowdfunding to using Regulation A to fund itself (in the Fundrise “iPO – internet Public Offering”), Fundrise continues to push limits of what is possible.

The minimum investment for Fundrise is $10, making it possible for anyone to invest in high-quality real estate. 

Fundrise 2.0

Fundrise started by crowdfunding individual properties, much like many other platforms still do. Then in 2015, they created the first eREIT, a regulated security that made it easy for ordinary investors to begin investing.

The company recently reinvented its platform again by introducing Fundrise 2.0. Instead of investing in individual eREITs, new investors can now invest based on investment objectives.

Investors who opened accounts prior to Fundrise 2.0 have the option to upgrade. 

The difference between Fundrise 1.0 and 2.0 is that Fundrise 2.0 chooses your eFunds and eREITs for you. You get instant diversification across all seven funds (as of August 2017). Allocations to those seven funds vary based on which objective you choose.

I finally upgraded my personal account to 2.0 in 2021. The upgrade only applies to future investments. Therefore, no sales or taxable events initiated upon the upgrade. 

Going forward, Fundrise chooses the best funds for my investment goal (Balanced). The other upside is I can now reinvest my dividends back into new funds again. 

This upgrade to Fundrise 2.0 further simplifies the platform and builds broad diversification into the core of Fundrise.

Learn more at Fundrise

Choosing an Investment Goal

eREITs and eFunds are non-traded securities that are only available on the Fundrise platform. Your money is split among the seven different funds. How your funds are allocated is based on your investment goal.

When you open an account at Fundrise, you’ll be directed to choose one of three investment goals: Supplemental Income, Balanced Investing, or Long-term Growth.

Each goal is invested a different allocation percentage of each type of asset. You get instant diversification across many of Fundrise’s real estate investments including properties in both the eFunds and eREITs. You’ll own a tiny piece of more than 50 properties when you choose your portfolio and invest your money.

Click the links below to learn more about each investment goal including the strategy, allocation percentages, and portfolio of properties:

Learn more at Fundrise

Fundrise Dashboard Overview

When you log into your established account, you’ll see your earnings to date and earnings since your last login. Then on the right is a chart of projected returns over a 10-20-year period. That chart isn’t very helpful. I’d like to see a better graphic replace it.

Across the top is a minimalist menu.

Scroll down and you’ll see a more helpful circle chart showing the total value of your portfolio and a sliver of donut for each property that is owned. This is the Asset view. The colors represent the risk profile of each property. The gray area indicates more properties will be added in the future.

Next to Asset, you can click the Map view to see where your investments are physically located. This view shows that the properties in your portfolio are spread all over the U.S. However, some over-concentration exists in L.A. and D.C. Fundrise is located in Washington D.C. so it’s no surprise properties are here. They also have developer relationships in L.A. that has opened up a number of deals there.

I’m familiar with the D.C. markets so I’m comfortable with the overweight here.

The third view is Investment. This shows the portfolio of holdings. I own all five eREITs, but no eFunds. I owned the three regional eREITs first and received my first dividends. Those were reinvested back into the funds. Unpaid earnings grow every day. Those will be paid out at the next distribution. NAV or net asset value is an estimate of what each share is worth based on numerous factors.

Scroll down again and there’s a list of all the properties owned in my portfolio. In the five eREITs, there are currently 37 properties (as of August 2017). Each one is listed. I’ve taken a screen shot of the six largest holdings. The colored circle represents the risk profile.

Click on any of the properties and you can learn more. For example, below is a screen shot of the B3 rated Alexandria, Virginia apartment complex. The basic information is included. This one is a JV Equity structure, multifamily complex, that is stabilized. Stabilized means it is being rented to tenants and operating normally.

Then some key deal points and a summary.

Other Tabs

From the Your Account tab on the menu, there are a few other pages to navigate to including Performance, Transaction, and Documents. But the most interesting to share here is the Updates page. Any time there is activity on your account, you receive an email and the message is added to the Updates feed. Below is an example. Here they announced the acquisition of new properties and reminded me they paid me a dividend. You can click on each item to learn more.

Learn more at Fundrise

Dividend Reinvestment

Similar to investing in dividend stocks, you can now reinvest your quarterly Fundrise dividends back into your funds. I’ve implemented reinvestment for my account since I’m still in a wealth building phase. I’m comfortable adding more to my accounts every quarter.

If you prefer, you can have your dividends deposited into your bank account.

For those who are invested since before Fundrise 2.0, dividends from several of the original funds cannot be reinvested back into those funds. Therefore, dividends are sent to your bank account. 

To be able to reinvest again, I recommend upgraded to 2.0. This action will then allow your dividends to be reinvested into new funds. Upgrading to 2.0 will have no impact on previous investments, only going forward. 

Investment Duration

All of the eREITs and eFunds are expected to have an investment duration of about five years. At that point, they expect to exit some investments to provide more liquidity to investors.

Liquidity

Due to investor demand, Fundrise implemented a quarterly redemption plan to provide liquidity even though the investments are meant to be five years in duration to allow fund maturity.

Should you decide to redeem your shares, the following redemption price schedule will affect your account:

In other words, if you exit the investment early, you’ll pay a small fee. 3% before three years, 2% before four years, and 1% before five years.

But remember, you’ll earn interest on your investment during that time, so you can withdraw your money and still be well ahead. The reduced redemption price encourages long-term holds to optimize the property investments.

Liquidity may be limited during a financial crisis. CEO Ben Miller has issued a letter to Fundrise investors explaining how the company will operate during a recession. 

The main point is that Fundrise investments are not correlated to stock markets which is a good thing. However, when turmoil hits, Fundrise will like limit liquidity in order to take advantage of real estate in the recession. 

Regarding a plunge in asset prices:

In such circumstances, Fundrise will almost certainly suspend our redemption program and investors should not expect us to provide them with liquidity.

Fundrise sees market downturns and forced selling as an opportunity. Therefore, they reserve the right to hold redemptions to have the cash to take advantage of the opportunity. 

There letter also states: 

If you think you may need liquidity from your investments with us during the next financial crisis, then Fundrise’s long-term illiquid real estate strategy is probably not a good fit for you.

eREITs vs. eFunds

Each fund can typically raise up to $50,000,000 to be invested. As money is raised from investors like you and me, the funds are invested into properties around the United States. As the investments mature, they create cash flow which is then paid out as dividends to investors.

A new eREIT was launched December 2020 called the Fundrise Interval Fund. It can raise up to $1 billion. 

eREITs are defined as follows:

An eREIT is a professionally managed, diversified portfolio of commercial real estate assets, such as apartments, hotels, shopping centers, and office buildings from across the country. Similar to an ETF or mutual fund but specifically for commercial real estate, an eREIT allows an investor to diversify across many properties at a relatively low cost and with minimal effort.

eFunds are defined as follows:

An eFund is a type of online alternative investment available exclusively through Fundrise. An eFund is a professionally managed, diversified portfolio of residential real estate assets, such as single-family detached homes, townhomes, and condominiums tailored to first-time, move-up and active adult homebuyers. Unlike publicly traded residential home builders, eFunds are structured as partnerships, not corporations, and therefore are not subject to the same double taxation.

Fees

All performance metrics and dividends on your account are net of fees. The fees are clearly disclosed in the FAQs. The fees are approximately 1%. These come out of your dividend payments, so the don’t lower the balance of your account. They lower the dividend.

From the FAQs:

The eREITs and eFunds charge a 0.85% annual asset management fee. In addition, clients of the investment services and management system pay a 0.15% annual investment advisory fee, although this may be waived in certain circumstances.

Fundrise claims (and justifies) that you’ll save 20 – 40% vs. traditional investments and 90% compared to traditional REITs due to the lack of corporate overhead.

The 8%+ Fundrise returns are net of fees. Those returns do not include long-term equity appreciation.

Taxes

Like dividend income and everything else, you do need to pay taxes on your Fundrise income. For the eREITs, you’ll receive a 1099-DIV in February or March to report on your annual tax return.

The eFunds are structured differently as partnerships. As such, you may receive a K-1 and be required to file it with your taxes. If the partnership operates in a state other than your own (likely), you may need to file additional state tax returns.

However, as stated in the FAQs, in some cases, a composite tax filing (by Fundrise) may eliminate the need for investors to file at the state level.

When I read about the K-1 and potential additional state filings, I was immediately turned off by the eFunds. So I reached out to Fundrise for clarification. Filing extra state tax returns would suck and be too expensive (negating returns).

Fundrise told me they intend to do composite filings for the eFunds, eliminating the need to individuals to file additional state tax returns. But could not guarantee it.

I am not a CPA or tax attorney so contact yours for your own specific tax questions.

Invest with a Self-Directed IRA

To lower your taxable income from Fundrise eREITs, you can invest with Fundrise with a self-directed IRA. Investing with a self-directed IRA requires an account with a custodian. Fundrise has partnered with a custodian called Millennium Trust Company to provide self-directed IRA services. Read more here.

Fundrise Starter Portfolio Review

The Fundrise Starter portfolio is simply a branded product to highlight the $10 minimum investment entry. For $10, new investors can instantly diversify among all of the active Fundrise eREITs and eFunds.

The Starter Portfolio is meant to give newer investors the same opportunities as experienced investors by creating a way to access high-quality real estate. Starter Portfolio investors will own the same eREITs as the other investors and be able to reinvest returns and add more funds.

According to the latest documentation, Fundrise Starter investors will receive a Form 1099-INT at tax time. That suggests that the eFunds are no longer included in the Fundrise Starter Portfolio.

Fundrise Innovation Fund

Fundrise investors now have the opportunity to invest in pre-IPO startups.

Venture capital investing is a new asset class for non-accredited investors. It’s another example of Fundrise being a prominent fintech innovator. 

I’ll be writing more on the Fundrise Innovation Fund in 2023. Stay tuned by subscribing to my email list at the bottom of the page. 

Fundrise Review – Cons and Risks

Up to here, it’s been mostly “pros”. An easy to invest platform where you can earn 8%+ yield super-passively does sound too good to be true. The platform isn’t perfect.

The most glaring negative on Fundrise is that you’re dependent on the investing prowess of the Fundrise investments team. These are seasoned professionals in the space, but individual investors don’t have a say in the property investments whatsoever. Fundrise 2.0 made this relationship more tethered.

As a result, the investments are passive, but reliant upon people you don’t know. If this makes you uncomfortable, see the next section below. Other platforms give you more control.

Giving up control, however, is how many novice investors with no experience with real estate can earn good returns. Fundrise is targeting those investors, not expert real estate investors.

Another downside is the liquidity that we discussed above. If you may need the money in a year or two, don’t invest it. Since these securities are not traded on stock market exchanges like traditional REITs, they are not subject to market fluctuations. That makes Fundrise investments non-correlated to the stock market. The next time the stock market declines, you’ll appreciate that (oh wait, that’s not a con).

Income from Fundrise dividends are non-qualified, meaning they are taxed as ordinary income. This will bump up the tax rates on these fund which is always a bummer. Invest with a self-directed IRA to avoid the extra tax. The high yields help make up for the tax rate. And I suspect Fundrise has this issue in mind. They are innovating to make this process as investors friendly as possible, but dealing with the constant nag of regulation and compliance,

Fundrise is growing quickly and innovating. Sometimes that means changes you aren’t ready for. For example, I was perfectly happy with Fundrise 1.0. Then it changed. I still haven’t upgraded because I like it the way it was. However, all signs point to the Fundrise 2.0 model in the future. On the plus side, Fundrise is innovating to stay ahead of the curve. Some 100+ new platforms were formed to follow what Fundrise establish first. Startups must innovate or be overcome.

Lastly, all investments carry some risks, especially those with higher returns. Fundrise was, in part, born out of the financial crisis and real estate bubble a decade ago. Another similar crash would be detrimental to these investments. However, many of these investments provide housing to people, and those people will always need a place to live. And these investments are long term and can hopefully ride out any storm. But you may lose money investing in Fundrise, as you would in the stock market or anywhere else.

Learn more at Fundrise

Fundrise vs. PeerStreet

Since I can’t try every platform, I’ve chosen three real estate crowdfunding platforms on which to invest my money.

In addition to Fundrise, I invested in PeerStreet.

Peerstreet is a good platform similar to LendingClub, but for real estate debt. 

Read my PeerStreet review here.

The basic difference between the two platforms is that on the PeerStreet platform, you invest in individual real estate deals instead of eREITs. Lots of data is provided to the investors for due diligence. This includes appraisals, comps, financials, and past successful deals of the sponsor. Then you choose which deals you want to invest in.

PeerStreet requires a larger minimum investment of $1,000 per deal.

These are mostly fix-and-flip debt deals and all cash offers. 

A major drawback for PeerStreet is that only accredited investors can invest. Accredited means either 1) the investors must have a demonstrated annual income of $200,000 (single) or $300,000 joint for the past two years, or 2) must have a net worth of more than $1 million, single or joint, excluding primary home equity.

That leaves out many investors making Fundrise the most accessible platform. A few other advantages for Fundrise:

• You can invest whenever you want – on the other platforms, you must wait for a deal you like.
• Don’t have to pick individual deals- less time spent on vetting investments. But less control.
• Instant diversification – Your money is dispersed among many real estate properties instead of one deal.

If you’re non-accredited, go with Fundrise.

If you are accredited, you can still choose Fundrise for the ease of investing and diversification. 

I am no longer investing on the PeerStreet platform due to multiple loans that defaulted. I’m waiting for fund restoration to consider additional funds. 

What are my Fundrise Returns?

In 2021, I started adding $500 per month to my Fundrise account, in addition to the $12,000 investment from 2017 through early 2021. I’ve reinvested most dividends over that time. 

As of 12/28/2021, my total investment of $13,750 is now worth $20,900. The weighted averaged annual returns from 2017 to the present are 12.3%

Between the seven funds, I own a piece of 107 “active projects”, diversifying my holdings among a health dose of high-quality real estate properties.

Additional Information – Fundrise Review 2023

Being at the forefront of the fintech and crowdfunding revolution, media outlets are interested. CEO Ben Miller has been interviewed on podcasts a few times. I highly recommend checking out the two podcasts below if you are considering investing with Fundrise. Ben talks about the origins of Fundrise and their ambitious plans for the future.

CEO Ben Miller on the Lend Academy Podcast.

CEO Ben Miller on Invest Like a Boss Podcast.

And this link to press mentions is endless. Lots of information if you want to learn more.

Don’t Forget: The minimum investment for the Fundrise Starter Portfolio is just $10 to invest. 

Learn more at Fundrise

Chime In

Have you invested with Fundrise? What is your take on the platform? Please add your insight in the comments section below. If you have ANY questions about Fundrise, I’m happy to answer any specific questions that I can. Add to the comments section or contact me directly and I’ll respond. Most everything is answered in the FAQs on the website, but being a user I may be able to provide feedback on less obvious inquiries.

Thanks for reading my Fundrise review 2023.